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Largest US mall proprietor Simon says he nonetheless desires to save lots of different distressed retailers

David Simon, CEO of the Simon Property Group

Anjali Sundaram | CNBC

David Simon, chief executive of Simon Property Group, said Monday that the company is still trying to bail out more troubled retailers after seeing deals on bankrupt Lucky Brand, Brooks Brothers and J.C. Penney gave up.

"We purchase inventory at or below cost," said Simon of the company's acquisition strategy during a conference call with analysts. "There's profit in there."

"We're still looking for other options," he said. "We do our fair share to try to keep this world as normal as possible."

As an example, the CEO noted that bailing Brooks Brothers from complete liquidation alone would save around 4,000 jobs.

"I'm not shopping into this analysis you got, that we're going to these retailers to buy rent," he said.

Simon Property shares fell around 1% in after-hours trading after rising more than 5% on the day. A report late Sunday said Simon had discussions with Amazon to open warehouses in some closed Sears, and J.C. Penney would have boosted the company's share price on Monday.

So far this year, more than 40 retailers have filed for bankruptcy. CEO Simon compared the trend in retail to the early 1990s, when there was more lasting impact after a wave of bankruptcies, including the surge in e-commerce, than in the post-Great Recession period, when trends returned to normal relatively sooner .

"We expect more lasting effects here," he said. "This is not your grandmother's recession … we are dealing with a lot more bankruptcies."

Profit falls when coronavirus shopping malls close

Although Simon has the balance sheet to conduct transactions, sales and earnings have declined in the last period.

For the quarter ended June 30, Simon Property announced that net income fell from $ 495.3 million, or $ 1.60 per share, to $ 254.2 million, or 83 cents per share, a year ago. Revenue decreased 24% to $ 1.06 billion.

Analysts had expected the mall's owner to earn 98 cents a share on sales of $ 1.14 billion, according to Refinitiv estimates.

Funds from Operations – a metric used by real estate mutual funds that excludes certain costs like depreciation – fell to $ 2.12 per share.

Simon's retail properties in the US were closed for around 10,500 shopping days in the second quarter of the financial year due to the Covid 19 crisis.

The largest US mall owner said it collected around 73% of its rents from retailers in July. About 91% of its tenants were open for business again as coronavirus lockdown measures have subsided.

It said it collected about 51% of its contracted rent for April and May combined and about 69% in June. These percentages have not been adjusted for rent reductions granted to tenants to provide some relief.

In June, Simon Property sued one of its largest tenants, Gap Inc., for failing to pay more than $ 65.9 million in rent and other fees.

"We still have retailers to deal with," said David Simon. "Certain tenants have not paid rent. They have contracts to which they are obliged, but certain tenants have not paid."

Simon said the company was "generally encouraged by the buyer's response" when it reopened.

Analysts were impressed with the rental income percentages compared to some of Simon's colleagues at the mall.

"The important thing is that most properties are open and that rental collections tend in the right direction after openings," said Wes Golladay, an analyst at RBC Capital Markets, in a statement to clients.

As of June 30, Simon Property said the occupancy rate was 92.9%, down from 94.4% the previous year. The minimum rent per square foot was $ 56.02, up 2.8% year over year.

The quarter ended with $ 8.5 billion in liquidity, including $ 3.6 billion in cash and $ 4.9 billion in available capacity under its revolving credit facility and a term loan.

Simon Property shares were down around 55% this year at close of trading on Monday. The company has a market value of $ 20 billion.

You can find Simon's complete publication of results here.

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